Asia up as upbeat earnings, data sharpen risk appetite

By Shinichi Saoshiro

TOKYO (Reuters) – Asian equities rose on Monday, taking heart from upbeat U.S. economic data and slightly better-than-expected health checks on euro zone banks, which helped revive investors’ risk appetite.

Spreadbetters expected Europe to retain the upward momentum, forecasting London’s FTSE and Germany’s DAX to open up by as much as 0.3 percent and France’s CAC 0.5 percent higher.

The euro ticked up but financial markets largely showed a muted reaction to results of stress tests on euro zone banks released on Sunday.

Of the euro zone’s 130 top lenders, 25 failed the health checks at the end of last year but most have since repaired their finances, the European Central Bank said.

Still, the test results were a sombre reminder that much work still remained, with the euro zone banking sector’s long-term attractiveness damaged by revelations of extra non-performing loans and hidden losses that will dent future profits.

“Banks face a significant challenge as the sector remains chronically unprofitable and must address their 879 billion euro exposure to non-performing loans as this will tie-up significant amounts of capital,” accountancy firm KPMG noted.

The euro was up 0.3 percent at $1.2703, edging away from a two-week low of $1.2614 hit last week in wake of concerns about the bank tests.

Asian equities advanced, with the MSCI’s broadest index of Asia-Pacific shares outside Japan climbing 0.2 percent. Tokyo’s Nikkei gained 0.7 percent, supported by a weaker yen.

“Stable housing starts in the U.S. and solid Q3 GDP in the UK are likely to give the market some comfort after the recent concerns about global growth,” strategists at Barclays wrote in a note to clients.

Data on Friday showed new U.S. home sales rose to a six-year high, while Britain’s economy expanded 0.7 percent in the third quarter, still on track to outpace other advanced economies.

U.S. stocks, recovering from a battering earlier in the month on worries about global growth losing momentum, were also supported on Friday by upbeat earnings from blue chips Microsoft and Procter & Gamble.

The dollar traded at 107.995 after touching a three-week peak of 108.38, with a rise in U.S. Treasury yields and improving risk appetite shoring up the greenback.

The Brazilian real’s non-deliverable forwards had a muted response after leftist President Dilma Rousseff narrowly won re-election on Sunday.

Investors have generally disliked Rousseff’s interventionist management of state-run companies and other sectors of the economy, but some traders think her re-election is already priced in as the real has fallen nearly 10 percent since early September.

In commodities, Brent crude extended losses, falling 20 cents to $85.93 a barrel, after Goldman Sachs cut its price forecasts. Crude continued on a months-long rout as signs of rising global supply threatened deeper losses.

Iraq increased its oil supply in October and Libya’s output remains high, despite instability in both countries.

Gold edged lower as robust equity markets and strong U.S. economic data dented demand for the precious metal.

Spot gold was down 0.1 percent at $1,230.97 an ounce.

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